The U.S. dollar edged lower on Friday, extending its recent slide as markets brace for a key inflation reading that could reinforce expectations for a Federal Reserve rate cut next week.
By 04:10 ET (09:10 GMT), the Dollar Index — which measures the greenback against six major counterparts — was down 0.1% at 98.872, positioning the currency for a weekly decline of roughly 0.5% and leaving it near a five-week low.
Focus turns to PCE inflation release
The dollar has come under steady pressure in recent sessions as traders prepare for the possibility that the Fed will cut rates next week, particularly after softer labor-market signals. Still, the broader economic backdrop remains murky following the lengthy U.S. government shutdown, which also pushed back the release of the monthly payrolls report normally due today. As a result, investors are turning their attention to the PCE deflator — one of the Fed’s preferred inflation barometers — even though the figures will be for September.
Market pricing implies around an 86% probability of a rate cut next Wednesday, with expectations for several more reductions in 2025, according to LSEG data.
Traders are also monitoring whether President Donald Trump will nominate White House adviser Kevin Hassett to replace Jerome Powell next year as head of the central bank.
“For the big dollar, it remains slightly offered on the view that the Fed will cut rates next week and that the arrival of Kevin Hassett as Fed Chair will somehow make the Fed more dovish,” ING analysts wrote.
Euro firms as eurozone data awaited
EUR/USD inched up 0.1% to 1.1654, approaching Thursday’s three-week high of 1.1682.
Germany’s industrial orders rose far more than anticipated in October, climbing 1.5% on the month versus expectations for a 0.4% rise, according to official data.
Later in the session, investors will receive final third-quarter GDP numbers for the eurozone, expected to confirm annual growth of 1.4% and a quarterly expansion of 0.2%.
“We have a slight bias that EUR/USD trades to 1.1700/1730 and continues to find support in the 1.1630/40 area,” ING said.
GBP/USD added 0.1% to reach 1.3348, edging toward Thursday’s six-week high of 1.3385. Despite challenging U.K. economic data, sterling has remained resilient following last week’s budget announcement.
Fresh Halifax data released Friday showed U.K. house prices were unchanged in November after a 0.5% increase in October.
“Sterling continues to do well,” ING noted. “We doubt this represents a major reassessment of U.K. sovereign risk, although we note that the 10-year Gilt swap spread has held onto its modest narrowing and is now at 48bp. This stood at 58bp in late September. We prefer to see the current sterling rally as a short squeeze.”
BOJ expectations weigh on dollar-yen
In Asia, USD/JPY dipped 0.2% to 154.74 as speculation grew that the Bank of Japan may lift interest rates in December. A Reuters report suggested the Japanese government is increasingly amenable to such a move, while recent comments from BOJ Governor Kazuo Ueda were interpreted as less dovish, reinforcing the outlook for policy tightening.
USD/CNY held nearly steady at 7.0704, while AUD/USD advanced 0.3% to 0.6634, putting the Australian dollar on track for a weekly gain of about 1.3% following economic data that hinted at underlying strength.